The Relevance Of Conduct In Applying For Stay Of Proceedings

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Action speaks louder than words. This was what the Court of Appeal held in its recent decision in Yeo Eng Lam v Infinity Vantage Sdn Bhd, where it looked to the party’s actions and conducts rather than express statements contained in their pleadings to determine their intention.

Background The plaintiff, Infinity Vantage Sdn Bhd, initiated a civil suit against the defendant, Yeo Eng Lam, for breach of a joint-venture agreement between them. The agreement contained an arbitration clause. Shortly after filing her memorandum of appearance at the High Court, the defendant applied to disqualify the plaintiff’s solicitors to act for the plaintiff. Four days later, she filed her defence and counterclaim. The defence and counterclaim had stated that it was filed without prejudice to the defendant’s right to apply for a stay of proceedings and to refer the dispute to arbitration.

Four more days later, the defendant applied for a stay of court proceedings pursuant to Section 10(1) of the Arbitration Act 2005, on the ground that the subject matter of the civil suit is subject to the arbitration agreement between the parties and, therefore, should be referred to arbitration instead.

The High Court dismissed the defendant’s application for a stay of proceedings. Aggrieved by the decision, the defendant appealed to the Court of Appeal.

The Legal Issue Section 10(1) Arbitration Act 2005 provides for a stay of court proceeding where an action has been brought against a party in breach of an arbitration agreement. In order to satisfy the requirements under Section 10(1), a party making the application must not have taken ‘any other steps in the proceedings’ before making the stay application. The Court of Appeal was asked to determine whether the defendant’s actions precluded her from relying on Section 10 (1). Another issue which arose was whether the defendant had reserved her right to refer the dispute to arbitration by express statements in her defence and counterclaim.

The Court Of Appeal Ruling The Court of Appeal found that the defendant had abandoned her right to refer the dispute to arbitration, firstly by applying to disqualify the plaintiff’s solicitors from acting and subsequently by filing her defence and counterclaim. Consequently, the defendant had taken ‘steps in the proceedings’ under the meaning of Section 10(1) and did not meet the requirements for a stay of proceedings.

In arriving at its decision, the Court of Appeal took guidance from the Federal Court’s decision in Sanwell Corporation v Trans Resources Corporation Sdn Bhd & Anor. In Sanwell, the Federal Court held that the service of any pleadings by a party is a clear step taken in the proceedings, and in doing so a party is taken to have elected to proceed with the court proceedings.

The Court of Appeal also noted the decision in PP Persero Sdn Bhd v Bimacom Property & Development Sdn Bhd which held that a party wishing to refer a dispute to arbitration must do so unequivocally. In that case, the High Court held that the defendant, in making an application to strike out the plaintiff’s claim, had clearly demonstrated a desire to abandon any stay application in favour of allowing the matter to proceed to trial.

Based on the decisions in Sanwell and PP Persero Sdn Bhd, the Court of Appeal noted that any stay application must be filed by the defendant at the soonest possible time and clearly and unequivocally state that it was made whilst reserving the party’s right to refer the matter to arbitration.

In the present case, the Court of Appeal found the defendant’s action to be contrary to the defendant’s wish to refer the dispute to arbitration. In this regard, the defendant’s purported reservation of her right to refer the dispute to arbitration as set out in her defence and counterclaim was not unequivocal and was overridden by her conducts in the proceedings.

Analysis The Court of Appeal’s decision serves as a timely reminder to litigants to not inadvertently waive their contractual right to resolve disputes by arbitration. While a party may attempt to reserve its rights to arbitration in its pleadings, the Court will look to their conducts and action in the proceedings to determine whether there is a clear and unequivocal intention to refer the dispute to arbitration or to proceed with court litigation.

The decision in Yeo Eng Lam illustrates the potential pitfalls a litigant may encounter in the early stages of proceedings. A misstep early on in the proceedings could result in a party compromising its position and potentially causing the loss of invaluable strategic advantages. It is therefore important for legal advice to be obtained at the earliest stage so that a robust strategy may be devised and adopted to achieve the best possible outcome.

October 27, 2020